LEGISLATIVE/TAX ALERT: IMPORTANT INFORMATION FOR RECIPIENTS OF PAYCHECK PROTECTION PROGRAM (PPP) LOANS
On March 27, 2020 in response to the immediate and anticipated economic impact of the COVID-19 pandemic, Congress passed the CARES Act which included provisions for qualified businesses to receive PPP loans. PPP loans were designed to support jobs by making funds available for payroll and associated costs. The terms of the PPP loans included provisions to make these loans both forgivable and non-taxable. In May 2020 the Treasury and IRS issued a notice announcing that while the forgiveness would be considered non-taxable, the expenses used to obtain the forgiveness would be non-deductible. This announcement essentially eliminated the non-taxable nature of the loans. Congress clarified that their intent was for the loans to be non-taxable and worked on legislation to correct the non-deductibility of the expenses. On December 27, 2020 HR 133 was signed, allowing for both the non-taxability of the forgiveness and the deductibility of the expenses.
In August 2020 the Utah State Legislature passed SB 6005 which provided that for Utah taxes the PPP loan forgiveness would be nontaxable as long as the expenses paid with such loans were considered nondeductible. With the passage of Federal HR 133 the expenses are now deductible, which results in any forgiveness obtained by Utah businesses for their PPP loans being added back to taxable income in the year in which forgiveness is obtained.
Historically, Utah tax policy has followed federal tax policy. As a result the provisions of SB 6005 and subsequently the passage of HR 133, the state of Utah is currently out of sync on how PPP loan forgiveness will be treated for income tax purposes. Due to the complexities of these bills we encourage all members that will receive forgiveness for a PPP loan to contact your CPA or tax preparer to understand the impact this may have on your business. Squire also encourages anyone to reach out to your local legislative representatives with concerns on this or any applicable tax or business policy.
For more information or to contact your representatives please see the following links: